Financial Institutions Into Activity

GOAL: The goal is for the three entrepreneurs to start businesses. In order to do this, each entrepreneur needs to purchase workers, machines, and a factory.

Resource Prices • A worker card costs $5. • A machine card costs $20. • A factory card costs $100. In order to start a business, an entrepreneur needs to acquire • 6 worker cards • 3 machine cards • 1 factory card

The entrepreneurs will have to borrow money in order to buy the required cards. They will have to pay interest in order to give savers an incentive to lend their money. In order to borrow money, the entrepreneurs will have to sign promissory notes with lenders. A promissory note is a loan agreement whereby a borrower promises to pay back a loan and also to pay interest.

The lenders keep the signed promissory notes. Each entrepreneur should keep track of how many notes she or he has outstanding, the amounts, and the interest rate.

Winning the Game

The winning entrepreneur will be the student who first obtains all the necessary resource cards. The winning lender will be the student who receives the highest average interest rate. To find the average interest rate at the end ofthe round, lenders should add up the interest rates on their promissory notes and divide by the number of notes.

PT. 1- what problems did you encounter?

The situation demonstrated in this activity is much like the situation in many of the transition economies. Few financial institutions have been developed to make it easier to obtain savings from individuals in order to have enough money to purchase the resources it takes to begin a new business.

PT. 2

WE WILL NOW OPEN A BANK, AND MISS EVANS IS IN CHARGE!

How does the existence of a bank make it easier for an entrepreneur to open a business?

Financial Institutions in a Command Economy

Students will read article on Russian government.